Taxation Theory, Practice & Law

TAXATION THEORY
PRACTICE & LAW

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................3
REFERENCES................................................................................................................................7

QUESTION 1
Material Facts
Perisher Pty Ltd is Ski equipment manufacturer operating in Victoria. On May 1, Nikita
employee of Perisher is provided with car due to travel for work purposes. Car is used for both
work and private use and is purchased for $44000 including GST and $2000 for delivery
charges.
Travelling of 12000 kilometres have been done from May 1, 2019 to March 31, 2020.
Repairs of $770 have been incurred which are also reimbursed. Car has not been in use for 10
days when Nikita was interstate and remained parked at airport. It was also not used for 5 when
it was under repairs. Perisher wants to identify for Fringe Benefits for the car and reimbursement
provided to Nikita.
Identification of legal issues regarding tax benefits
Fringe benefits refer to additional benefits given to employees over the stated salary for
performance of specific services. Fringe benefits such as health insurance and social security are
required by statute while other benefits are provided voluntarily by employers(Kennedy and
et.al., 2017). Examples of fringe benefits include lunch and breakfast, employee stock options,
gym membership, transportation benefits, childcare and such other benefits. Fringe benefits are
taxable under FBTAA, 1986. It lays the provision related to Fringe benefits provided to
employee.
In the present case Nikita has been provided with car for office work and also for private
use. Car is mainly used for the employment related travelling and not for private work. Company
has to pay tax over fringe benefits provided to the employees (Murphy, 2019). Perisher will be
paying tax only over the period for which it is used.
Generally statutory FBT method is used that is based over cost of vehicle instead of
identifying its private use. The method uses 20% flat rate taking into account number of days per
year vehicle is used for private use. FBT arises when the business vehicle is made available for
private use of employee. In this method tax could be payable on vehicle even when it is parked
in the Garage of employee.
Fringe benefits tax are paid by the employer and tax is paid by employee if the value of
benefits exceeds the threshold limits under ITAA, 1997. If the vehicle is used for travelling
between work and home fringe benefit is exempt.
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